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Commissioner Doyle's Keynote Address to the Eno Center for Transportation's Forum on the Panama Canal

FMC Commissioner William P. Doyle
Keynote Address
Eno Center for Transportation
Forum on the Panama Canal: Lessons Learned and Implications for World Commerce

Good morning. I would like to thank Eno’s President and CEO Joshua Schank as well as Secretary Mort Downey for inviting me to speak with you this morning. I would also like to thank the officials from the Panama Canal Authority who are present here today-- Ilya Marotta, Executive Vice President for Engineering and Program Management, and Rodolfo Sabonge, Executive Vice President for Planning and Business Development.

I am a Commissioner with the U.S. Federal Maritime Commission. The Federal Maritime Commission is an independent regulatory agency responsible for regulating the nation’s international ocean transportation for the benefit of exporters, importers, and the American consumer. The FMC’s mission is to foster a fair, efficient, and reliable international ocean transportation system while protecting the public from unfair and deceptive practices. With that said, I should emphasize that my thoughts and comments here are mine and mine alone – they do not reflect the position of the Commission, and they should not be construed to represent the positions of any of my fellow Commissioners.

I am pleased that Eno has taken the time to put together this forum on the Expansion of the Panama Canal. Indeed, the expansion represents one of the greatest public works projects in modern history.

The United States and Panama have a long and cooperative history with regards to the Panama Canal.

In 1902 the SS SHAWMUT was built in the Sparrows Point Shipyard in Baltimore, Maryland. In 1910 the vessel was purchased by the Panama Railroad Company so that it could be utilized for the construction of the Panama Canal. The name of the ship was changed to the SS ANCON, 1 named after Ancon Hill which overlooks Panama City, Panama, adjacent to Ancon Township on the west coast side of the Canal. Last month, August 14, 2013, marked the 99th anniversary of the official opening and transit of the SS ANCON through the Panama Canal. We’ve come a long way since then.

Today, the Panama Canal is undergoing a $5.3 billion expansion project that is expected to be completed in early 2015. The expansion will enable a doubling in the tonnage of trade that can pass through the Canal. In terms of ship size, the canal’s expansion will allow a 160% increase in the size of ships able to transit the Panama Canal.

The Obama Administration, members of Congress and state and local officials support the tremendous economic, business, job-supporting, energy and transportation related opportunities the expanded canal will bring to the United States.

To meet the Canal’s expansion, ports are deepening their shipping channels and harbors, updating their rail lines, raising bridges, improving tunnels for railways, increasing dock facilities, and installing new cranes to accommodate larger ships and much greater cargo volumes. And the modernization of U.S. ports is not just happening on the East and Gulf Coast — West Coast ports are also updating their infrastructure to accommodate larger vessels.

I would like to highlight the importance placed on our ports by the Obama Administration with a couple of examples:

Last week Vice President Joe Biden visited the Port of Baltimore and presented a $10 million grant for widening the port’s shipping channel and for upgrading rail access. 2 Just this Monday, the Vice President visited the Ports of Charleston, South Carolina and Savannah, Georgia to champion infrastructure updates in anticipation of the expanded Canal. 3, 4 And though he had to recently postpone his trip, the Vice President is expected to visit Panama to view the progress on the expansion of the Canal.

The Baltimore grant is part of the Transportation Investment Generating Economic Recovery (TIGER) 2013 discretionary program. 5 This program distributed approximately $474 million for transportation projects in 37 states. Of that amount, nearly 45% of the funding will be utilized for port and rail improvements.

In July, President Obama visited the Port of Jacksonville and toured the facilities while emphasizing the importance of Florida’s infrastructure updates to accommodate larger ships that will transit the Panama Canal in 2015. 6

Last year the Obama Administration announced that it would expedite the federal permitting processes for the Port of Jacksonville, the Port of Miami, the Port of Savannah, the Port of New York and New Jersey, and the Port of Charleston. 7

On March 29, 2013, in the Port of Miami, Florida, President Obama outlined a program of transportation bonds and other measures to encourage infrastructure improvements on roads, bridges, and ports. 8

On May 17, 2013, President Obama signed a Presidential Memorandum to modernize the federal infrastructure permitting process, cutting timelines in half for major infrastructure projects while creating incentives for better outcomes for communities and the environment. 9

The Administration recognizes that the Panama Canal expansion project will be completed in 2015 and the U.S. needs to be ready. Some of these initiatives are part of President Obama’s "We Can’t Wait Initiative" and are based on a March 2012 Presidential Executive Order titled Improving Performance of Federal Permitting and Review of Infrastructure Projects. 10

Panama Canal and Suez Canal Trade Routes

While the progress that the U.S. makes in building its infrastructure in anticipation of the Canal widening is important, users of the Canal are also looking at alternatives, namely transits through the Suez Canal. In 2008, only 14 percent of total transpacific TEU capacity calling at U.S. East Coast ports transited the Suez Canal. In 2013, that percentage has increased to 35 percent. 11 This year Maersk Line and the G6 Alliance 12 of container carriers each rerouted one U.S. East Coast transpacific service through the Suez instead of Panama. 13

Currently, Panama can allow vessels of up to about 5,000 TEUs , while the Suez can allow the largest container ships afloat today. Carriers have the ability to replace two Panama services with one string of much larger ships using the Suez Canal to gain economies of scale. Maersk adjusted its service this year whereby it sends one 9,000 TEU vessel through the Suez as opposed to two 4,500 TEU vessels through Panama. 14

According to Maersk, the fees for the Panama Canal have tripled over the past five years for a 4,500 TEU vessel. APL, CMA-CGM and MSC have also switched some of their transpacific services from Panama to the Suez citing vessel size accommodations and better economics. 15

It is worth mentioning, that within the past month, a ship transiting the Suez Canal was reportedly attacked by rocket propelled grenades (RPGs). 16 The apparent terrorists even filmed their two prong RPG attack on the vessel COSCO ASIA container ship and posted the video on YouTube.

Now, Egyptian security officials claim that "the operation was a random operation that is not backed by an organization." 17 Bloomberg recently reported that Egyptian authorities had "tightened security along the Suez Canal" after the attack on the COSCO ASIA. 18

The shipowners, operators and shippers will review their trade route options as we get closer to the completion of the expanded canal. Included in their decision making will be security and a cost benefit analysis -- which means that the decision makers need to know as soon as possible the costs associated with transiting the Panama Canal.

Progress on Slot and Transit Fees for the Panama Canal

The Panama Canal Authority (ACP) recently met with the Japanese Shipowners Association (JSA) and several car manufacturers in Japan as part of the ongoing discussions with the vehicle carrier segment on the Expansion Program’s progress and future toll structure for the canal. 19

During the meetings, the ACP provided an update on the expansion program and presented the analysis of the results for the potential pricing structure for the car carrier segment taking into account the feedback received recently from this group.

I understand that ACP officials have engaged in similar discussions with the container carriers.

It is important to keep an ongoing an open dialogue regarding transit costs with all stakeholders and segments of the shipping community.

LNG Exports—Preparing for the Expanded Canal

I would like to provide an example of a new type of U.S. manufactured export product that could really benefit from the expansion of the Panama Canal.

Not long ago the United States was positioning itself to be the world’s largest importer of natural gas. In 2006 there were approximately 50 proposed liquefied natural gas (LNG) import projects in some stage of regulatory review. 20 The U.S. was on the verge of becoming ever more reliant on the Middle East for its natural gas.

That all changed in 2008 when the independent natural gas producers in the U.S. proved that abundant amounts of natural gas could be extracted and produced from shale basins in places like the Pennsylvania, Ohio and West Virginia. 21 Indeed, these producers perfected the technique known as horizontal multistage hydraulic fracturing. 22

Today, the U.S. has not only slashed its imports of natural gas from overseas, but we are on the verge of becoming a major competitor on the supply-side of natural gas through our LNG exports.

The world’s largest market for liquefied natural gas is Asia. As it stands now, South Korea and Japan are the largest importers of LNG. In the coming years, China may be added to that list. 23

With the Dominion Cove Point decision issued by the Department of Energy last Wednesday, the Obama administration has now authorized 6.37 billion cubic feet of liquefied natural gas to be sold overseas. 24 Dominion, located in Maryland, is the first East Coast export project that has been approved and it is the closest terminal to Appalachia’s Marcellus and Utica shale formations.

How do we get the domestically produced natural gas into the export market?

Once the expanded Panama Canal opens, the distance to ship U.S. natural gas from the Gulf Coast of the United States to Asia will decrease by 9,000 miles. 25 Only 21 of the existing global fleet of 370 LNG tankers can currently fit through the Panama Canal. 26 None use the Canal.

However, more than 80 % of the tankers will be able to make the passage through the Canal once the widening is complete (Platou Consultants). 27 The U.S. will be competing with Australia, Russia, East Africa and the Middle East as a natural gas supplier for Asia. The development of U.S. natural gas resources, together with the Panama Canal Expansion, will have a transformative impact on the U.S. energy and transportation landscape, helping to improve our energy security while spurring economic development and job creation around the country.

Closing

I have a close and personal relationship with Panama and it citizens. These relationships began prior to my days as an Officer in the U.S. Merchant Marine when I transited the Canal and delivered petroleum to Chiriqui Grande.

I am a 1992 graduate of the Massachusetts Maritime Academy. I was fortunate to meet and become friends with Panamanian cadets at Mass Maritime. Back then, Panama was planning its transition as a nation to take over full operational control of the Panama Canal in 1999. Thus, many Panamanian students entered the Maritime Academies in the United States to receive maritime training and earn maritime related degrees.

I would like thank Captains Leopoldo Icaza and Luis Carlos Casco Arias of the Panama Canal Pilots Association for attending this forum today. We all understand the importance and need of shipboard pilots on the canal. Leo and I were classmates at Mass Maritime.

English: Now, more than 20 years later, Panamanian graduates of the Maritime Academies, including Mass Maritime, have entered into leadership roles in and around all public and private disciplines with respect to the operations and management of the Panama Canal. You have all done well. I congratulate all those Panamanians who are graduates of the U.S. Maritime Academies and I want to especially say hello and congratulations to my Panamanian friends from Massachusetts Maritime Academy.

It is Panama’s commitment to modern infrastructure and world oceanborne commerce that is spurring the U.S. to meet the challenge. It is our great --U.S. / Panama-- working relationship that will make this project a success. I’m convinced the United States will meet the infrastructure challenges and it will be a win for American workers and a win for the American economy.

For reference, the G6 Alliance was established in December 2011 and began operations in March 2012. The parties to the G6 Alliance are American President Lines, Ltd. (APL), Hapag-Lloyd Aktiengesellschaft (Hapag-Lloyd), Hyundai Merchant Marine Company (Hyundai), Mitsui O.S.K. Lines (MOL), Nippon Yusen Kaisha (NYK), and Orient Overseas Container Line Limited (OOCL). Furthermore, the G-6 Alliance is a vessel sharing agreement between the New World Alliance (APL, Hyundai, and MOL) and the Grand Alliance (Hapag-Lloyd, NYK, and OOCL). ?

In early 2008, Terry Englander, a geosciences professor at Pennsylvania State University, and Gary Lash, a geology professor at the State University of New York at Fredonia, surprised everyone with estimates that the Marcellus might contain more than 500 trillion cubic feet of natural gas. Using some of the same horizontal drilling and hydraulic fracturing methods that had previously been applied in the Barnett Shale of Texas, perhaps 10% of that gas (50 trillion cubic feet) might be recoverable. See http://geology.com/articles/marcellus-shale.shtml?

Zhang Yuwei, China's Hanas seeks gas partners in US, China Daily, September 9, 2012, (China and the US - the world's two largest economic super powers - will have more opportunities to work together in the liquefied natural gas (LNG) industry in the next 10 to 15 years, with China's increasing demand and the US' supply ability and "appealing" prices, said Ma Fuqiang, president of China's Hanas New Energy Group (visited Air Products Corp. in Pennsylvania on Sept. 10, 2013), http://usa.chinadaily.com.cn/epaper/2013-09/09/content_16954312.htm. ?